We use investor sentiment as a contrarian indicator of stock market direction. Growing bullish sentiment is a warning for stock market investors. Bullish investor sentiment increased during the past week. This is an indication investors should be more cautious. The Investors Intelligence poll of market newsletter writers showed bullish sentiment at 52.8% an increase from 49.1% the previous week. Sentiment above 50% calls for caution. Bullish sentiment above 55% means investors should take defensive measures.
Meanwhile, bearish sentiment was 17.9%, slightly higher than the 17.0% the previous week. Bearishness below 20% is another indication investors should be careful, and certainly not embark on major buying programs. The spread between bullish and bearish sentiment (see chart) expanded for the second week to +34.9 from 32.1% and 30.4% at the start of October. Bull-bear spreads above 40% call for defensive measures.